When you cease to be a Canadian tax resident, the Canada Revenue Agency (CRA) treats you as having sold all of your property at fair market value on the date you leave. This deemed disposition triggers capital gains tax on the accrued appreciation in your assets — a liability that can be substantial for individuals with appreciated investment portfolios, real estate, or private company shares. This is what tax professionals call 'departure tax.'
Departure tax is one of the most significant and least understood aspects of leaving Canada. Many individuals discover the liability only when they file their final Canadian tax return — by which point it is too late to implement strategies that could have reduced it. TYM's [departure tax planning](/services/cross-border-tax/departure-tax-planning) specialists advise individuals well before the departure date.
What Triggers Departure Tax
Departure tax is triggered when you cease to be a Canadian resident for tax purposes. Residency is determined by a facts-and-circumstances analysis, not just by where you live. The CRA considers: whether you have severed residential ties to Canada (home, spouse, dependants), whether you have established residential ties in another country, and the overall pattern of your connections to Canada.
Simply moving to the US does not automatically terminate Canadian residency. If you maintain a home in Canada, have a spouse or dependants in Canada, or have other significant ties, the CRA may continue to treat you as a Canadian resident even after you have moved. The departure date — and therefore the deemed disposition date — must be carefully determined.
What Is Deemed Disposed
On your departure date, you are deemed to have disposed of most of your property at fair market value. This includes: publicly traded securities (stocks, ETFs, mutual funds), private company shares, real property outside Canada, partnership interests, and most other capital property. The deemed proceeds equal the fair market value on the departure date. The adjusted cost base (ACB) is subtracted to determine the capital gain.
The capital gain is included in income on your final Canadian tax return (T1 — Departure Return) at the applicable inclusion rate. As of 2024, the capital gains inclusion rate for individuals is 50% for gains up to $250,000 and 66.67% for gains above that threshold (following the 2024 federal budget changes).
What Is Exempt from Departure Tax
Several categories of property are exempt from the deemed disposition: Canadian real property (taxed when actually sold under FIRPTA-equivalent rules), Canadian business property used in a Canadian permanent establishment, RRSPs and RRIFs (exempt from departure tax; taxed when withdrawn), pension plan interests, and stock options (subject to separate rules).
Canadian real property is exempt because Canada retains the right to tax the gain when the property is actually sold, regardless of the seller's residency at that time. This is the Canadian equivalent of FIRPTA.
The Departure Return and Instalment Option
Your final Canadian tax return is called a Departure Return (T1 — Year of Departure). It covers the period from January 1 to your departure date. The departure tax liability is due on April 30 of the following year (or June 15 if you have self-employment income).
If the departure tax liability is large, you can elect to post security with the CRA and defer payment until the property is actually sold. This is called the 'security for departure tax' election. The security can be in the form of a letter of credit, a mortgage on Canadian property, or other acceptable collateral. TYM advises on whether the security election is appropriate and manages the CRA security process.
Pre-Departure Planning Strategies
The most effective departure tax strategies are implemented before the departure date, not after. Common strategies include: crystallizing losses before departure to offset gains, contributing to an RRSP before departure (the contribution deduction reduces the departure year income), transferring property to a spouse who is remaining in Canada (no deemed disposition on spousal transfers), and timing the departure date to fall in a year with lower income.
For individuals with significant private company shares, a pre-departure reorganization may allow the departure tax liability to be deferred or reduced using the lifetime capital gains exemption (LCGE), which shelters up to $1,016,602 (2024) of qualifying small business corporation gains.
How TYM Advises on Departure Tax
TYM's cross-border tax practice advises individuals on departure tax planning starting 12–24 months before the intended departure date. We calculate the estimated departure tax liability, identify applicable exemptions, model pre-departure strategies, and prepare the Departure Return and any required elections. We also coordinate the Canadian and US tax filings for the year of departure, which involves both a Canadian Departure Return and a US arrival return.
If you are planning to leave Canada in the next 1–2 years, [contact TYM](/get-free-consultation) for a departure tax assessment before you make any irreversible decisions.
Share this article
